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Updated from 9:59 a.m. EDT

Mortgage applications jumped almost 20% in the week ended July 2, as national average interest rates dropped and consumers ended their fence-sitting after the

Federal Reserve Board

raised short-term interest rates by 25 basis points.

The Mortgage Bankers Association, a trade group, said that its index of mortgage loan applications rose 19.5% from the week before on a seasonally adjusted basis, with purchase applications up 15% and refinancing applications up 27.6% from the week before.

While the pickup in activity was expected after the long run-up to the Fed's rate hike, mortgage applications for the week were still down 34.1% from the same period a year ago. The market had ample notice of the Fed's intention to raise rates and may have overreacted in advance, especially given a spate of disappointing economic reports last week.

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The percentage of refinancing jumped to 35.8% of total applications, up from 33.4% the week before. The share of adjustable-rate mortgage applications also rose slightly, climbing to 34.1% of the total, up from 33.9% the previous week.

Eric Barron, president of the Barron Mortgage Group in New York, said the increase in activity came mostly from refinancing."That was huge," he said. "Refinancing has been slowing for months and months and months, and was pretty much dead in the water."

The national average for 30-year fixed-rate mortgages decreased to 5.96% from 6.21% one week earlier, while the rate for 15-year fixed-rate mortgages dropped to 5.39% from 5.61%. The national average for one-year adjustable-rate mortgages, or ARMs, dropped to 3.90% from 4.18%.

"I think you saw the big drop

in mortgage rates last Wednesday because everyone knew the Fed was only going to raise

short-term rates a quarter," Barron said. "The last thing Alan Greenspan wants to do in an election year is shock the market."

Last year, for the week ended July 1, Freddie Mac showed 30-year rates at 6.21%, 15-year rates at 5.62% and one-year ARMs averaging 4.19%.